The Philippines has been one of the more successful countries at attaining and maintaining an open economy where free market forces prevail.

It?s a system that has its weaknesses as the financial crisis sweeping the world dramatically and disastrously highlights. But this disaster is not because of the free market. It?s because of abuse of that market by unscrupulous, unprincipled individuals and institutions that cared not a whit for anybody but themselves.

There?s been call for tighter regulations to prevent such excesses. Maybe some improvement is needed but it should be the minimum possible. I?m scared there?ll be overreaction and excessive control introduced, effectively negating the advantages of a free market. I?d argue instead that far better monitoring be introduced to catch the scams and manipulations. Existing laws can then deal with those people.

Equally worrying is a trend I sense in this government to interfere in the free market itself. It?s a government too often making populist decisions at the expense of good common sense.

It started way back (in 2001) when the President limited the price Napocor could charge for electricity to below commercially-viable levels. Napocor?s consolidated loss by 2003 had then reached a whopping P117 billion before good sense returned and prices were raised to a level that gave modest profitability to Napocor.

Related to that was the overt and obvious move to take control of Meralco. Fortunately it failed, but it sent shivers through the business community: What next might the President covert for government control?

Well, what next in a slightly different but equally worrying way was the unfair competition the government has introduced in the pharmaceutical industry. Parallel imports, as they?re called, directly compete with the free market. It?s all very well to say that medicines are beyond the reach of the poor, as indeed they are. But the solution is for government to buy from the market (they?d be able to contract cheaper prices with the volumes they?d need) and provide them at subsidized rates through public hospitals and clinics.

The real solution of course is to put in place the right policies that attract investment to grow the economy so everyone can afford to buy medicines. But we?re a long way from that happening.

Republic Act 9502 also allows the President, upon the recommendation of the Secretary of Health, to put a cap on the retail prices of medicines under specific situations the President deems necessary. But who decides? How can you invest when making a profit (or not) can be arbitrarily taken away from you for reasons you not only can?t control but can?t even reasonably predict? It puts in place a level of uncertainty that is anathema to business.

Now the attack is on the cement industry?because its prices are too high. Of course they?re too high, the government?s inability to provide a competitive investment environment ensures it.

Electricity prices are high, coal prices are high, transportation is expensive, while the number of businesses is too few to support the cement plants that are here. They came here because they expected a vibrant economy. They?re not getting it because the government is not putting in place an environment that would attract investment?as the $1.65 billion (from January to November last year) clearly show. No one is investing now, least of all in the Philippines.

Incidentally, cement prices are not high because the cement companies are gouging the public through excessive profits as the usual mindless NGOs claim. All you?ve got to do is look at their books to see that, something these vociferous critics may wish to do. They?d find that the return on investment in 2008 was a modest 2 percent. In the construction industry, about 6 to 18 percent is more normal. They pay more in taxes than they get in dividends.

Cement is an essential, basic industry but instead of trying to support it, government is trying to destroy it. It has announced it will import 1 million tons of cement from Japan in direct competition with the local industry. What a great way to kill something, a number of cement mills have already shut down, expect soon full company closure if this harebrained idea is continued. The only way cement from Japan can be cheaper is if government sells it at cost, or less, because Japan is not a cheap source of cement. That is unfair competition.

Amusingly (amusing?) is that Japan only exports cement in bulk while the Philippine ports can only handle bagged cement, there are no silos to off-load the cement into. Who will do the bagging? Where? At what cost? Add to that that government is inviting new mills into the country even though there?s excess capacity available. It would be far cheaper and wiser to revive mothballed mills than build a new one given the huge increase (average global steel prices were up approximately 35 percent in 2008 as compared to 2007) in steel prices (a major need to build a new mill).

It?s doing the invitation by offering incentives that will result in foregone revenues (taxes) the government desperately needs this year, particularly when it intends to spend over P300 billion on pump priming. Foregone revenues the government wouldn?t have to forego if it helped existing companies to survive. It will need every peso it can find.

If it?s to give any tax breaks, it should be giving it to existing mills where investors have already gambled on the Philippines by investing?not lure new ones to compete against them on unfair terms. Who?s going to invest in a country that does things like that?

An idea that may help address the shenanigans of building shoddy roads and bridges and ensure construction contractors do a proper job would be to require a performance bond to cover both the construction period and for 5 (or 10) years thereafter. If a road (for example) collapses after five years, as they did in Eastern Samar, the contractor draws on the bond to effect repairs. He can?t just run away from any responsibility for the quality of his work.

These performance bonds would be issued by banks upon deposits of a suitable premium based on likely risk. With some of the more unscrupulous local companies, of course that premium might have to be 100 percent! Which would work well as it would make their bids uncompetitive.

It would be a great way to reward reputable companies with a good track record, they?d pay a lower cost and win more of the projects. It would help force building to approved standards, or better.

On the South Luzon (erroneously labeled) Expressway, there are four huge posters on overpasses that say: ?Tatapusin ang mga Daan Tungo sa Kaunlaran? with a picture of GMA. Loosely translated that?s: ?We will finish the roads leading to progress.? If this is a road leading to progress, no wonder the country is getting nowhere. Who?d want to be identified with the chaos of the SLEX rehabilitation. If I were her I?d take them down. And fire the contractors.

Comments to my columns can be sent to plw@mydestiny.net